Community bankers have lost millions of dollars in commercial loans to credit unions that can offer more favorable loan terms because of their tax exemption, the Independent Community Bankers of America contends in its latest salvo in the legal battle over the NCUA’s new Member Business Loan rules.
“When credit unions compete against ICBA’s member banks for commercial loans, they do so on an uneven playing field,” Christopher Cole, ICBA’s executive vice president and senior regulatory counsel, said in documents filed asking a federal judge in Virginia to reject NCUA’s motion to dismiss the suit.
In the suit, the ICBA argued that at the same time, the NCUA is loosening regulatory oversight, creating risks for consumers and the financial system. The bankers asked that the rules be voided.
In its motion to dismiss, the NCUA argued that the recently issued MBL rules simply removed the requirement that credit unions seek agency approval for non-member business loan acquisitions that, when combined with the credit union’s member business loans, exceed a statutory cap.
In its response to that argument, the ICBA said that the NCUA issued the new rules to “appease the commercial wish list of the federally insured credit unions it is supposed to be closely supervising.”
Cole said that because of the 2016 rules, credit unions will find it much easier to combine lending capabilities into syndicates.
And the ICBA attached affidavits from community bankers who contend their business lending has been harmed by credit union competition. The bankers’ names and the name of their institutions were redacted in the documents.
“Based on information we have obtained from our customers or potential customers, the bank has recently lost around $4 million in various types of commercial loans to credit unions,” the president/CEO of a Michigan community bank said in his affidavit.
The banker said a credit union could offer better rates than the bank could offer.
“We often lose commercial loans to credit union competitors who use their tax-exempt status to undercut what the bank is able to offer borrowers on loan terms, fees and interest rates,” a Montana community banker said.
The banker estimated that it has lost about $30 million in commercial loans to credit unions.
